Tesla Stock's 50% Crash: 1 Metric Suggests More Pain Is Ahead for the Electric Vehicle Giant

There is never a dull moment in the land of Tesla (NASDAQ: TSLA). The electric vehicle (EV) giant's shareholders went through a period of euphoria that sent the stock surging after the 2024 election. Today, with the stock down by around 50% from its all-time high, all these gains have been erased. Meanwhile, the company's margins continue to erode, and it's losing market share in countries around the world.

As ever, CEO Elon Musk has grand ambitions for the future of Tesla. Cybercabs, a new roadster, artificial intelligence (AI) projects, and even a Tesla Diner are in the works. Yet regardless of how excited Musk is about the company's future, one earnings metric matters above all else for this stock price, and it looks ugly right now.

Slow deliveries, sinking revenue

Tesla reported its first-quarter results after the close of trading Tuesday, and its stock surged in after-hours trading. However, that upswing -- which, despite sharp oscillations in sessions that followed, has largely persisted as of midday Thursday -- was likely due in part to the broad market reaction to President Donald Trump's statements around U.S. tariffs on China and his lack of a plan to try to fire Federal Reserve Chair Jerome Powell. If you take a look at the underlying Tesla report, the numbers do not look good.

Tesla's EV deliveries fell 13% year over year. Revenue sank 9%, only slightly buoyed by the rapid growth of the energy generation and storage segment. Gross margin sank to 16.3%. Operating margin in Q1 was a razor-thin 2.1%, illustrating how threatened Tesla is by rising costs and competitive threats from other EV brands. The company's market share gains have stalled in all three of its important markets -- China, North America, and Europe -- as competitors gain ground on the once-dominant EV brand.

Management is not optimistic about the rest of 2025, either. It delayed providing guidance numbers until next quarter, and offered no thoughts about what growth might look like for the rest of 2025. This is not a good spot for what was once considered one of the fastest-growing technology companies in the world.

Where are the new products?

Upbeat investors may say that investors should look to the future. Tesla claims that it will bring a new, more affordable vehicle model into production in 2025, and says it plans to boost its annual production capacity to 3 million vehicles. (Tesla produced just under 2 million vehicles in 2024.) To which a bear might reply: Where are the people clamoring to buy these vehicles? Demand for Teslas has fallen off a cliff, and sales volume is only being supported by steep price cuts that have collapsed profit margins. Adding capacity for 1 million new vehicles while competitors such as BYD wipe the floor with it by gaining market share in China does not seem like a wise move.

The company is also making bold promises about new products outside of its core consumer EV niche. There is the Cybercab, an autonomous vehicle that it expects to ramp up to volume production in 2026. Its Optimus Robot is still under testing, and there's no publicly available timeline for when it might be released. These products may be technologically innovative, but nobody should expect them to move the needle financially for Tesla anytime soon. In my opinion, any investor who is betting on Tesla stock today because of the Cybercab or Optimus is giving too much credit to a management team that time and time again has made promises it later proved unable to fulfill.

TSLA PE Ratio (Forward) data by YCharts.

One metric matters above all else

Generally speaking, a company's stock price will move higher over the long term if the earnings power of the underlying business is growing. But for investors to benefit from that earnings growth, it helps to buy the stock at a reasonable price, too.

In Tesla's case, neither bottom-line growth nor an appealing valuation are on offer. Its earnings keep declining -- in the first quarter, its $0.27 in adjusted earnings per share (EPS) came in well below the $0.39 analyst expectation. Tesla's operating income has fallen since the end of 2022, and will likely keep falling in 2025 if its profit margins remain in the gutter.

Investors can't pick up Tesla shares at a reasonable price today, either. The stock trades at a forward price-to-earnings ratio (P/E) of 95 -- and that figure doesn't yet reflect how analysts are likely to update their longer-term forecasts based on Q1's disappointing earnings. Forward P/E is the one metric that will matter above all else in determining Tesla's stock direction over the next few years, and it is wildly high relative to the market's average, which tends to sit in the 20 to 25 range.

In that light, the fact that Tesla carries such a lofty forward P/E ratio suggests that more pain is coming for its shareholders in the years to come. Avoid buying this stock right now.

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.